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Cisco's Tough Sell for Videoconferencing

John Chambers, the chief executive officer of Cisco Systems (CSCO), used to call telepresence his favorite new technology. In 2006, the year Cisco unveiled videoconferencing hardware priced as high as $300,000 per system, Chambers said it would set records for how fast it became a $1 billion business. “This is the first time in my career that I have seen this type of excitement and interest from CEOs for a technology,” he said a year later on an earnings call.

It turns out CEO enthusiasm isn’t enough to sustain a market. Cisco’s telepresence revenue has been mired in a two-year slump, adding to the company’s broader struggle to reverse sales declines. Pacific Crest Securities analyst Brent Bracelin estimates that the products accounted for 1 percent to 2 percent of Cisco’s $12.1 billion in quarterly revenue. (The company doesn’t disclose sales from telepresence.)

Cisco’s prices for telepresence hardware in smaller conference rooms have run as low as $20,000. That’s still high compared with monthly videoconferencing software subscriptions now offered by newer rivals like FuzeBox and Blue Jeans Network. For $10 to $15 per user per month, these competitors provide software that works with a range of smartphones, tablets, and other devices to turn conference calls into videoconference calls. It’s not the same as talking in hardware-linked boardrooms, but not everyone needs that. Cisco “designed something that’s fit for a king, and only kings can afford it,” says Krish Ramakrishnan, who worked there before co-founding Blue Jeans Network.

Four-year-old Blue Jeans, which routes its videoconferencing programs through the cloud, works with customers including Facebook (FB) and Rosetta Stone (RST). Fellow cloud conferencer FuzeBox, which began to pursue this market in 2009, has in the past year peeled off former Cisco clients such as Groupon (GRPN). Tim Sheff, Groupon’s head of multimedia technology, estimates he’ll save at least 75 percent on hardware setup and maintenance by equipping future conference rooms with FuzeBox.

Blue Jeans has raised about $100 million in venture funding and estimates it will stream 1 billion minutes’ worth of meetings during 2014, a tenfold increase from this year. FuzeBox, with about $46 million in funding, says it’s on pace for 150 million minutes over the next 12 months and its minutes in October were up 250 percent from a year earlier.

Cisco began to shift toward subscriptions a year ago when it hired Rowan Trollope, who spent 21 years at security software maker Symantec (SYMC). He’s since replaced 80 percent of managers in the collaboration division, which includes telepresence, and recruited software and cloud experts to develop a subscription service priced more in line with its smaller rivals’. Cisco now offers desktop software and its higher-end telepresence hardware at monthly subscription rates ranging from $25 per employee to $5,100 (for a conference room system that used to sell for $300,000). “People don’t understand that we’ve transitioned,” Trollope says. “The growth of this business is not where it needs to be.”

Cisco has $48 billion in cash and can afford to lose money as it lowers prices. But the 75,000-employee company is used to high-margin sales of network switches and routers, not trickles of subscription revenue, says Mike Volpi, a FuzeBox investor who worked at Cisco for 13 years. Cisco products, he says, are “designed for maximum value extraction at the time of sale.”